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Freeport (FCX): What's in Store this Earnings Season?

Freeport-McMoRan Inc. FCX is set to release first-quarter 2016 results ahead of the bell on Apr 26.

Last quarter, the mining company delivered a positive earnings surprise of 85.71%. Freeport has beaten the Zacks Consensus Estimate in two of the trailing four quarters, while missing in the other two with an average negative surprise of 6.13%.

Let’s see how things are shaping up for this announcement.

Factors to Watch For

Freeport reported a loss of $3.47 per share for fourth-quarter 2015, compared with a loss of $2.75 a year ago. The results include net charges of $4.1 billion or $3.45 per share mainly related to the reduction of the carrying value of oil and gas properties. Barring that impact, adjusted net loss was 2 cents a share in the fourth quarter, narrower than the Zacks Consensus Estimate of loss of 14 cents.

For 2016, Freeport expects consolidated sales to be around 5.1 billion pounds of copper, 1.8 million ounces of gold, 73 million pounds of molybdenum and 57.6 barrels of oil equivalent (MMBOE). For the first quarter of 2016, the company expects 1.1 billion pounds of copper, 200,000 ounces of gold, 19 million pounds of molybdenum and 12.4 MMBOE.

Freeport is conducting exploration activities near its existing mines with a focus on opportunities to expand reserves that will support the development of additional future production capacity in the large minerals districts, where it currently operates. Favorable exploration results indicate opportunities for significant future potential reserve additions in North and South America, and in the Tenke Fungurume minerals district.

Freeport continues to progress with its expansion initiatives in Latin America. At Cerro Verde, Peru, a large-scale concentrator expansion project started operations in Sep 2015. The $4.6 billion project would provide incremental annual production of around 600 million pounds of copper and 15 million pounds of molybdenum beginning 2016.

Freeport is taking aggressive actions, including assets sales and deferral of capital spending amid a challenging operating environment. The company is actively managing costs and capital expenditures in a bid to strengthen its balance sheet.

Moreover, Freeport’s board is currently undertaking a strategic review of its oil and gas business to assess alternatives designed to enhance value for the company’s shareholders. A depressed oil price environment is hurting Freeport’s oil and gas business. The company is also taking actions to increase its debt reduction plans and enhance shareholder value through asset sales and joint venture transactions.

However, Freeport’s copper business remains affected by the sluggish global economy and supply related issues. The difficult market conditions in Europe are still affecting copper markets.

Earnings Whispers

Our proven model shows that Freeport is likely to beat estimates this quarter because it has the right combination of two key ingredients.  

Zacks ESP: Earnings ESP for Freeport is +6.25% as the Most Accurate Estimate is currently at a loss of 15 cents, while the Zacks Consensus Estimate is pegged at a loss of 16 cents.

Zacks Rank: Freeport holds a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.  

Stocks That Warrant a Look

Here are some companies in the basic materials sector you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Barrick Gold Corp. ABX has an Earnings ESP of +12.50% and a Zacks Rank #3 (Hold).

Agnico Eagle Mines Ltd. AEM has an Earnings ESP of +50% and a Zacks Rank #3.

Air Products and Chemicals, Inc. APD has an Earnings ESP of +0.56% and a Zacks Rank #2.

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